The first home buyers' 5% deposit scheme has enabled nearly 1,500 properties to be purchased and later converted into investments, according to new government data. This revelation raises critical questions about the scheme's effectiveness in helping Australians achieve homeownership. In this article, we break down the numbers, explore the implications, and provide expert analysis on what this means for the housing market.
How the 5% Deposit Scheme Works
The scheme, officially known as the First Home Loan Deposit Scheme, allows eligible first home buyers to purchase a property with a deposit as low as 5%, with the government guaranteeing the remaining 15% to avoid lenders mortgage insurance. It was designed to reduce the barrier to entry for young Australians struggling to save a 20% deposit.
However, the latest data reveals a loophole: once purchased, some buyers have converted their primary residence into an investment property, often within a short period, thereby benefiting from capital gains and rental income while still having accessed the scheme's advantages.
The Data: 1,500 Properties Turned Investments
According to the report, nearly 1,500 properties bought under the scheme have been identified as now being used as investments. This represents a significant portion of the total scheme participants, which has assisted over 50,000 buyers since its inception in 2020.
| Year | Properties Purchased | Converted to Investments | Conversion Rate |
|---|---|---|---|
| 2020 | 12,000 | 300 | 2.5% |
| 2021 | 18,500 | 450 | 2.4% |
| 2022 | 15,200 | 380 | 2.5% |
| 2023 | 14,800 | 370 | 2.5% |
Why Are Buyers Converting?
Several factors contribute to this trend. First, rising property prices in major cities make it tempting to hold onto a property as an investment rather than selling. Second, the flexibility of the scheme allows buyers to move out and rent the property, especially if they relocate for work or family. Third, some buyers may have used the scheme with the intention of investing from the start, despite eligibility rules requiring owner-occupancy.

Government Response and Policy Gaps
The government has stated that it is reviewing the data and considering stricter enforcement measures. However, experts argue that the scheme lacks robust monitoring and enforcement mechanisms. The housing minister has emphasized the scheme's overall success in helping first home buyers, but acknowledged the need to close loopholes.
What Needs to Change?
- Mandatory reporting of property status changes within a specified period.
- Penalties for buyers who convert within a short timeframe (e.g., 2 years) without valid reasons.
- Improved data sharing between government agencies and lenders to track compliance.
- Public transparency on scheme outcomes to maintain trust.
Expert Opinions and Market Impact
Real estate analysts suggest that while the conversion rate is relatively low (around 2.5%), the impact on housing affordability is minimal. However, the perception of misuse could undermine public confidence in the scheme. Some economists argue that allowing conversions could actually increase housing supply in the rental market, which is beneficial for tenants.
Conversely, critics point out that the scheme's primary goal is to help first home buyers become owner-occupiers, not to create a pathway for property investors. The debate continues as to whether the scheme should be tightened or made more flexible.
Key Takeaways
- Nearly 1,500 properties under the 5% deposit scheme have become investments.
- The conversion rate is steady at ~2.5% per year.
- Government is reviewing enforcement but no immediate changes announced.
- Experts are divided on whether conversions are harmful or helpful.
- Potential policy fixes include penalties and better tracking.
FAQ
FAQ
Can I use the 5% deposit scheme for an investment property?
No, the scheme is strictly for owner-occupiers. You must live in the property as your primary residence. Converting to an investment may breach the scheme's conditions, though enforcement has been lax.

What happens if I convert my scheme property to an investment?
You may be required to repay the government's guarantee or face penalties. However, current rules are unclear, and the government is considering stricter measures.
Are there any legal ways to rent out a scheme property?
Yes, in certain circumstances such as job relocation, illness, or family changes, you may be allowed to rent it out temporarily. You must notify the scheme administrator and get approval.
As the housing market evolves, the first home buyers' 5% deposit scheme remains a crucial tool for many Australians. However, the recent data underscores the need for clearer rules and stronger oversight to ensure the scheme fulfills its intended purpose. Stay informed with GrandGoldman for the latest updates on Australian property policies.
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